Their condition is not yet know.
Video shot my a member of the public appears to show the suspect attempting to attack police with a knife and trolly before a shot is fired.
The officers ultimately fired a shot, causing the man to fall down.
The man was arrested and taken to hospital in a critical condition, police said.
Video taken by witnesses shows a auto on fire in the area and bystanders using a shopping trolley and chair to confront the attacker. Police response was swift and overwhelming.
"Then I heard a loud bang and someone said they could see someone doing chest compressions on someone as an ambulance started coming up the street as well".
A bystander tries to assist police by ramming a shopping trolley between police and the suspect.
Dozens of police cars are on the scene with helicopters overhead.
Police have closed down several blocks in the middle of the Melbourne CBD as they attend to an incident involving a vehicle that reportedly "exploded".
"Police are aware of an incident in the vicinity of Bourke Street", Victoria Police have said in a statement.More news: Northern California wildfire destroys hundreds of buildings
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"A man was arrested at the scene and has been taken to hospital under police guard in a critical condition".
Police are not looking for anyone further at this early stage.
"He seemed to be waving something, people around me screamed that he had a knife, but I couldn't see clearly from where I was", she said.
Speaking at the scene, Superintendent David Clayton said: "Police quickly responded to the incident".
The officers were immediately confronted by a man brandishing a knife and threatening them.
He's in a critical condition.
"Three people have been stabbed".
Another person at the scene said: "I saw people running, screaming".
"There is no known links to terrorism at this stage we will keep an open mind as to whether there is any link".